Rating agency Moody’s Corp. agreed Friday to pay $864 million to 22 states and the federal government for inflating its ratings on residential mortgage-backed securities, which helped exacerbate the 2008 financial crisis.
California will recover $150 million in damages for the state, which settles loss claims by the two major pension funds, CalPERS and CalSTRS on their investments, according to acting Attorney General Kathleen Kenealy.
The settlement brings to over $1 billion that has been recovered for California’s public pension funds. In 2014, Bank of America paid $300 million to settle allegations it misrepresented the mortgage-backed securities it sold. Similar settlements reached with Citigroup for $200 million and J.P.Morgan Chase for $300 million came in 2013 and 2014.
Moody’s systematically misrepresented to the public, and to the state public pensions that its ratings on the structured mortgage instruments were based on objective analysis, when they were actually skewed by Moody’s own economic interests, according to the state. Clients relied on the ratings to invest in these risky ventures, which led to the 2008 financial meltdown in the mortgage market.
“Moody’s Corporation misled their clients about the objectivity of its ratings and their misconduct caused significant losses to Californian’s pension funds,” Kenealy said.
Moody’s will pay $863.8 million to federal and 22 state entities, with California’s share $150 million.